BP, Obama and the Gulf

The oil continues to gush into the Gulf of Mexico. It began to flow out of a hole that resulted from an explosion on April 20 on the Deepwater Horizon drilling platform. Once an oil seam has been tapped, it is hard to stop the flow, so the oil flows unabated. BP and its various allies have tried various tactics to cap the leak, to no avail. There have been suggestions to plug the hole with golf balls, and even one to use a small nuclear device. Fortunately the latter was not attempted.

Meanwhile, millions of gallons of oil has flowed into the ocean, with considerable amounts coming ashore on the United States, and threatening Cuba. The natural gas that has left the hole has sucked oxygen from the water. This has scientists worried about the potential of greater devastation of marine life. The best-case scenario promises that relief wells drilled near the Deepwater hole will be able to take up the oil pressure. These will not be ready before August. An environmental catastrophe unfolds.

Meanwhile, on land, President Barack Obama tries to reassure a restive U.S. public with hard words for BP. The communities on the U.S. coastline are distraught by the devastation. Those who are predisposed to dislike Obama see this as his Hurricane Katrina, as he appears to flounder without any meaningful leadership on display. Those who continue to support him point the finger at the Bush administration, under whose watch the rules for offshore drilling were loosened.

To some extent the reaction to the oil disaster is a Rorschach’s test for one’s political loyalties. What is disregarded is that this is a crisis neither for the Republicans nor the Democrats. It is more likely a crisis for a mode of governance that has become more than cosy with remarkably powerful super corporations. The flag the corporation flies (in this case, the Union Jack) is only relevant for jingoistic feints. But these are not consequential. In the confines of the White House and in the chambers of Congress, once the television cameras are off, the lawmakers and the lawbreakers shake hands, transact money and go along with business as usual.

BP’s America

After meeting with Obama, BP, the embattled oil firm, promised to put $20 billion into an escrow fund to cover claims against it. BP’s head, Tony Hayward, went to the U.S. Congress to answer questions from the House Committee on Energy and Commerce. He ducked each question with a plea of ignorance. “I was not part of that decision-making process,” he said. His performance was so ghastly that the Daily Telegraph’s Mark Borkowski found that he “looked like a tired undertaker who was rather bored with having to look mournful”. BP’s board chair, the Swedish telecom tycoon Carl-Henric Svanberg, removed Hayward from the front seat and took over the driving. There is no indication that Svanberg will be better at the job. He already took flak for being patronising to the “small people”. But Svanberg was an ice hockey player and might be tougher when thrown against the boards.

Market analysts have not lost faith in BP. Early predictions of the cost to BP fluctuated from under $3 billion (Bank of America-Merrill Lynch, April 28) to the $100 millions (UBS, April 28) to the very high $36 billion (Barclays Capital, June 17). Citigroup’s Mark Fletcher, who is a very influential energy broker, put a Buy rating on BP, largely because BP’s assets and profits far outstrip the costs of the spill, “even assuming damages can be claimed”.

After the Exxon Valdez leaked its oil cargo into the Alaskan waters in 1989, the company did not pay full price for the damages. The original settlement of $5 billion in 1994 came down to $1 billion in 2009. It is likely that even with the political pressure, BP might come out of this crisis with a smile on Tony Hayward and Carl-Henric Svanberg’s faces.

BP is a behemoth. Its revenue in 2006 was $246.1 billion (it beats out South Africa and just about rivals Denmark). BP’s international operations take it to each continent, and most oceans. Super corporations such as BP are given a free pass on many regulations set by nation-states, since governments seem eager to attract their capital and expertise at any cost. Environmental and labour norms are the first to be set aside. Equally disparaged are regulations that hamper the remittance of profits.

The U.S. Congress had even put a cap on damages, a sure-fire way to create moral hazard – it was only the outrage of the U.S. population in this instance that forced Congress to hastily do away with its cap. If the super corporations are able to lean on governments that are not keen to undermine their national laws, in some countries such as the U.S. the intimate relationship between government and corporation makes such adjustments par for the course.

The Deepwater Horizon disaster has enabled those within the government who are not given over to corporate welfare to demand access to documents that demonstrate these links. What one finds in this paper trail is remarkable for its flagrancy.

Oversight

In 1982, the U.S. Department of the Interior created the Minerals Management Service (MMS). The purpose of the MMS was to oversee minerals leasing in the Outer Continental Shelf and to supervise all offshore operations. The MMS collects revenue from those it oversees. Proximity to money has led to several corruption scandals in the MMS (in 2008, MMS collected $23 billion in royalties). In 1990, allegations of a sex scandal in the Denver and Dallas offices of the MMS led to some reassignments, and in 2008, an internal investigation found that MMS officials had traded sex and drugs with energy industry officials. There was never a commitment to strong regulation from this agency, which suffered from what the internal investigator called “a culture of ethnical failure”.

A 2008 study of the MMS by Interior Department officials considered it “a dysfunctional organisation that has been riddled with conflicts of interest, unprofessional behaviour and a free-for-all atmosphere for much of the Bush administration’s watch”. Little has changed in the Obama period.

The MMS was tasked with overseeing BP’s operations in the Gulf of Mexico. It did a horrendous job. There is little point in having a robust regulatory regime if it is prone to being exempted. On April 6, 2009, the MMS gave BP a “categorical exclusion” from the National Environmental Policy Act (NEPA).

The Congress passed the NEPA in 1969 in the aftermath of an oil spill off the coast of Santa Barbara, California. A blowout at Union Oil’s platform in the Dos Cuadras Field brought 100,000 gallons of oil to the Channel Islands and to the California coastline. This made-for-television disaster came in the aftermath of Rachel Carson’s highly influential Silent Spring (1962), an environmentalists’ manifesto. One chapter in that book, “A Fable for Tomorrow”, depicted an American town silenced by the effects of DDT. Now, an oil disaster threatened to silence a prosperous part of California. The NEPA passed relatively easily. But the exemptions given to corporations make a mockery of the law, and of laws in general.

BP earned its 2009 exemption as a result of the MMS’ inadequate evaluation of offshore drilling and in particular the Deepwater Horizon. In 2007, the MMS felt that “a large oil spill” from Deepwater would not exceed 1,500 barrels and a “deepwater spill” that might occur “offshore of the inner Continental Shelf” would not reach the coast. A second assessment put the total spill at 4,600 barrels and predicted that a spill would dissipate after 10 days. Lease 206 for Deepwater Horizon, therefore, pointed out that “no mitigation measures other than those required by regulation and BP policy will be employed to avoid, diminish or eliminate potential impacts on environmental resources”. U.S. regulators allowed BP to operate with lower safety standards than is required in the North Sea, and about the same kind of regulatory regime as is asked for by the government of Nigeria in its Delta. In other words, hardly any overseeing.

In 2009, with the Obama team in office, the MMS exempted BP from an environmental impact assessment. “Birds could become oiled,” the statement acknowledged, but “it is unlikely that an accidental oil spill would occur from the proposed activities” (BP, “Initial Exploration Plan for Mississippi Canyon Block 252”, February 2009). What about an action plan in case of a spill? “A model of a potential oil or hazardous substance spill is not required for the activities proposed in this plan.”

BP’s June 30, 2009, spill response plan is comedic. This 583-page document has no oceanic or meteorological data, it has no information about tracking sub-surface oil plumes, and it mentions animals that do not live in the Gulf of Mexico (sea lions, sea otters, seals and walruses). In addition, the report tells BP employees not to make “promises that property, ecology or anything else will be restored to normal”, alongside no promise on “liability for the spill or its consequences”. The only section of the report that seemed logical was BP’s attempt to ward off claims against its profits. The MMS accepted this as fact, including the bunkum about walruses.

But what must a super corporation do if there is indeed a spill in its deepwater operations? An MMS research document from 2000 warned that the oil industry could “ill afford a deepwater blowout” and that “no single company has the solution to such a catastrophe”. “The real test will come if a deepwater blowout occurs.” BP and other such super corporations failed to use even a small fraction of their enormous profits to develop new technologies to deal with the spill, which is why the trial-and-error methods used are all at least four decades old. The oversight required no failsafe plan for disaster management. BP is learning on the job. The Gulf is its laboratory, and the Gulf’s marine animals are its “lab rats”.

Revolving door

U.S. government agencies suffer from a revolving-door principle. Government agents who regulate corporations find themselves working for those very corporations in no time, for fabulous salaries. This creates a culture of impunity, where it is not in the interest of a regulator to be too strict – doing so might lose the regulator a lucrative career in the corporate world. In the Bush years, the door between industry and government was almost removed. Vice-President Dick Cheney allowed energy industry executives to help him draft the Bush energy policy. Cheney himself came to the vice-presidency from Halliburton, an oil services firm whose employees worked on Deepwater Horizon.

The MMS headquarters has been fitted with a well-oiled revolving door. Randall Luhti, MMS director in the Bush years, is now the president of the National Ocean Industrial Association. The NOIA sounds like a government body, but it is actually a lobby that represents “the companies that develop the nation’s valuable offshore energy resources”. Luhti took over the NOIA from Tom Fry, who had been the MMS head under the Clinton administration. It is a scandal in plain sight that seems to bother very few people. When Obama took office, he promised to clean up the MMS. The sex and drugs scandal of 2008 had tainted the agency. But nothing came of the outrage. To head the Interior Ministry, Obama chose an industry favourite, Ken Salazar. As his deputy to head the lands and minerals management section, Salazar chose Sylvia B. Baca. Baca came to the Interior Ministry from BP, to which she had gone from her post in the Clinton administration.

At his press conference on May 27, Obama was asked if it was fair to put the blame for regulatory failure on the Bush administration alone. He agreed to bear some responsibility, saying that “there wasn’t sufficient urgency in terms of the pace of how those changes needed to take place”. But of course the problem is that there seemed to be no momentum towards change. The hiring of Baca, the hasty granting of exemptions to oil companies such as BP and the eagerness to accommodate the oil giants all show a remarkable continuity of policy. Even after the April blowout, the MMS gave out 27 offshore drilling permits with lax safety and environmental scrutiny.

On June 15, Obama spoke to the U.S. public from the Oval Office. It was a sombre address. Tough words against BP were not, however, matched with actions. Corporate power restrained populist anger to a minimum.

In the end, President Obama had to turn to God, “Tonight, we pray for that courage. We pray for the people of the Gulf. And we pray that a hand may guide us through the storm towards a brighter day.” The “hand” that will operate in the Gulf might not be from God; more likely it is the Invisible Hand, eager for profit, wary of regulation, unhelpful in this time of human suffering.